Tuesday, December 11, 2012

Whether in California where laws have just changed, or in any other state, it is best to be fully equipped to know how to negotiate in advance so a short sale doesn't mean bringing money to the closing table.

Increase in Foreclosure Cancellations

Foreclosure Radar recently reported increased foreclosures cancellations in the state of California thanks to a recent change in California law that prohibits dual tracking (that’s proceeding toward foreclosure when there is a short sale or loan modification is in the works).
You’d think that the banks would be rolling out the red carpet for short sales based on the decline in the number of foreclosures. Unfortunately, that is not always the case. In fact, often times short sale guidelines from some investor note holders cause the lender to remove or reduce some of the seller fees that need to be paid from the sale proceeds. Some of the fees that the lenders continue to cut are settlement costs; title insurance; HOA document fees, transfer fees and outstanding dues; buyer closing costs; septic certification and pumping fees; property repairs; pest control fees and other non-institutional liens.

Reviewing the Settlement Statement

When you submit a short sale package to the lender (or if you are processing your short sale through Equator), you need to prepare a settlement statement that includes all of the possible seller fees associated with the closing of the transaction. It doesn’t matter whether you manually input your fees through Equator or whether you fax the settlement statement to the short sale lender, the lender will rely heavily on that statement in order to determine whether the short sale will be accepted, countered, or declined.
After reviewing the settlement statement, you may receive a call from the bank employee and he or she may tell you that the lender will not pay certain fees. So, how are you going to get the transaction closed if the lender refuses to pay certain fees?Here are some ways to get additional fees paid at or before closing:

Reach out to the buyer. If the buyer really wants the property, s/he may be willing to cover some of the unpaid fees. Speak with the buyer’s agent, and don’t forget to get permission from the lien holder for the buyer to cover these fees.

Discuss options with the seller. In certain parts of the United States, the law permits the seller to pay some of the unpaid fees at closing. Make sure to get permission from the lender for the seller to make a contribution at closing.

Negotiate. If unpaid HOA dues (or other liens) are not covered by the bank, try to negotiate. Offer 40 cents on the dollar and see how that goes. With all of your experience dealing with short sales, your negotiating skills may be much better than you think.

Provide a commission credit. While not an optimal scenario, there are certain situations where agents may want to credit commission in order to cover unpaid fees.

It’s a good idea to set expectations accordingly with respect to the short sale transaction. When taking the short sale listing, mention to the seller that there are sometimes situations where fees do need to be paid at closing. Since many short sale sellers are under the impression that a short sale is totally free, it’s a good idea to explain the entire scope of the short sale before you find yourself giving away your commission.

Tuesday, November 6, 2012

According to a recent article on Housing Wire, the new streamlined short sale guidelines for Fannie Mae and Freddie Mac short sales (beginning November 1) are alleged to be a win-win.
Remember that as these new short sale guidelines aim to have a more streamlined short sale when the investor owner of the loan is either Fannie Mae or Freddie Mac.These guidelines (information courtesy of the California Association of Realtors®):

Eliminate current Fannie Mae and Freddie Mac short sale programs and create a single standard short sale process for both entities (Fannie and Freddie HAFA programs will expire at the end of the year).

Enable servicers to quickly and easily qualify certain borrowers who are current on their mortgages for short sales without waiting for an approval from Fannie Mae or Freddie Mac

Offer special treatment for military personnel with Permanent Change of Station (PCS) orders.

Standardize and clarify foreclosure suspensions on a property with an approved short sale.

May pay borrowers up to $3,000 in relocation assistance.

Offer up to $6,000 to subordinate lien holders to expedite a short sale.

According to information provided directly to Housing Wire from FHFA, servicers will have the authority to approve a standard short sale for borrowers who are 31 days or more delinquent and borrowers who are less than 31 days delinquent as long as they are facing a hardship.
If a borrower is less than 31 days delinquent and facing a hardship (e.g., divorce, death, disability or military change of station orders), servicers now have the authority to approve a short sale without sending the paperwork to Fannie Mae or Freddie Mac.Just as we have seen with previous short sale programs, this streamlined program will only be as good as the bank employees that process the short sale packages.So, is this a trick or a treat? We will just have to wait and see.

A weary consumer from midcoast Maine wrote to us recently in hopes that others could benefit from her experience. She had sought some relief from her mortgage payment in the form of what is becoming a nasty twist on advance fee schemes.
Many homeowners have had their loans renegotiated with satisfactory results. Others, like our consumer, had been swayed by a company against which the Federal Trade Commission recently filed a complaint.

The company, calling itself Advocates For Consumer Affairs, had promised a number of clients that it could lower their interest rates and cut monthly payments on the order of 50-80 percent. It could do this, it claimed, using a tool called a forensic mortgage loan audit.

The FTC cites claims on the company’s website (now defunct) which claimed “up to 95 percent of mortgages may be legally unenforceable due to defects like lost documents, improper notices, appraisal and/or predatory lending.” The forensic audit could find these defects and use them as leverage to broker a better deal with the holder of the mortgage.

All the client had to do was pay the company several hundred dollars (in our consumer’s case, $1,800) up front. It was only later that the hard truth became clear.
The FTC reports that it’s found no evidence that forensic loan audits help with a loan modification or any other form of foreclosure relief. That’s the case even if the audit is undertaken by a trained, licensed, legitimate auditor, mortgage professional or lawyer.

Some federal laws make it possible to sue your lender based on errors in loan documents. Even if you sue and win, though, your lender doesn’t have to adjust the terms of your loan to make it more affordable.If you cancel your loan, you’ll have to return the borrowed money; that makes losing your home a real possibility.

People who are in default or are facing foreclosure are likely targets for foreclosure rescue scams. The midcoast consumer had entered into a business relationship with Advocates just weeks before the FTC hit the firm with, first, a temporary restraining order, then a preliminary injunction.
In its complaint, the FTC charged the firm:

• Did not secure interest rates or payment reductions that it promised.

• Put consumers at risk of losing their homes and having their credit ratings damaged.

The case is pending, and the midcoast consumer, along with many others in similar situations, is out a lot of money. We would urge people with mortgage woes to visit our blog and under the “education” tab find “foreclosure prevention kit,” a link to the Pine Tree Legal Assistance website and some excellent advice on how to really deal with mortgage problems.
You also may call 888-995-HOPE any time for free personalized advice from people in housing counseling agencies certified by HUD.ConsumerForum is a collaboration of the Bangor Daily News and Northeast CONTACT, Maine’s membership-funded, nonprofit consumer organization. Individual and business memberships are available at modest rates. For assistance with consumer-related issues, including consumer fraud and identity theft, or for information, write ConsumerForum, P.O. Box 486, Brewer 04412, visit necontact.wordpress.com or email contacexdir@live.com.

Tuesday, October 16, 2012

Short sale documentation is often required in order to determine whether there is a verifiable hardship or proof of imminent hardship. Many short sale lenders have guidelines with respect to hardship and can only approve short sales where they collect this documentation, and verify that the seller has a legitimate hardship—not just a plan for strategic default.

In conducting short sale, agents learn how critical is to gather and submit supporting documentations on a timely matter. Frequently, precious time is wasted when lender notifies that they do not have all the documents at hand thus can't issue approval.

Monday, October 8, 2012

Why the big banks are doing more short sales

San Diego County’s level of housing distress took a pivotal turn this year.
Short sales, once rare deals in the real estate world, now make up a bigger
share of the residential market compared to
foreclosed homes that have been resold.
Short sales allow homeowners who can’t afford their mortgages to sell their
homes for less than what they still owe, as long as the lender says OK. One in
five homes resold in the county were short sales, based on August numbers from
local real estate tracker DataQuick. Compare that to single-digit percentages
seen while the housing bubble began to percolate in 2007.
Short sales are expected to become even more common and easier to close as
Freddie Mac, which owns or guarantees a sizable chunk of mortgages in
California, will make it easier for borrowers to complete them starting next
month. Borrowers will see that the process is considerably shorter and that it
will leave less of a financial black mark on their credit histories.
Already boosting the number of short sales is a $25 billion mortgage deal
between the nation’s biggest banks and 49 states that settled foreclosure abuse
allegations and was signed earlier this year. The agreement essentially forces
banks to do more short sales and provide relief to borrowers on expedited terms.
Some banks are even offering cash as incentives to get more people to short
sell.
“Banks are really motivated to do short sales,” said Matt Battiata, who owns
Del Mar-based Battiata Real Estate. “...Banks have decided and learned over the
last several years that short sales are a much better way to mitigate loss.”
The end result appears to be good for the housing market.
The increase in short sales means a more dynamic real estate market, fewer
losses for banks and increased chances that short sellers could buy homes again
after a shorter hiatus.

Why the latest Freddie Mac changes matter

The biggest change? Freddie Mac officials in late August said they will no
longer require homeowners to default on their mortgage in order to qualify for a
short sale. As of Nov. 1, homeowners with Freddie-backed loans would just have
to prove financial hardship from events including death, divorce or
disability.
The change is a great protection for consumers because Freddie Mac doesn’t
typically postpone foreclosures for defaulted borrowers trying to qualify for a
short sale, said San
Diego short sale negotiator Jacalyn Blank. If the short sale falls
through, then the homeowner with a Freddie-owned loan is likely to face
foreclosure.
Without the upcoming change, “it’s a much more dangerous game to play,” Blank
added. “...Now they won’t have to take that risk anymore.”
The change also helps borrowers preserve their credit score, which can take a
dive if they are behind on their mortgage payments and hurt their chances of
buying another home.
The latest Freddie Mac changes also involve giving its servicers (the
companies that handle mortgage payments) more authority during the short sale
process.
This is another biggie, Blank said, because “it’s a long chain of telephone”
among Freddie, the servicer and negotiators without this newly granted
authority.
“This should cut two to three weeks out of the (short-sale) process,” she
said.
Freddie Mac buys mortgages from lenders and sells them to investors on the
secondary mortgage market. The government-controlled company with fellow
mortgage giant Fannie Mae owns or guarantees more than 50 percent of the
mortgages in California, so what Freddie says and does in a short sale could
affect a number of potential buyers and sellers in the market.

Why the mortgage settlement matters

Six months ago, five of the nation’s largest lenders struck a $25 billion
deal with attorneys general of 49 states to settle allegations that they
financially hurt borrowers and abused the mortgage system for years. Though
pundits would later criticize
California Attorney General Kamala Harris and other leaders for
giving in to the banks too easily, the long-awaited settlement was major. It’s
second only to the massive tobacco-industry deal reached in the 1990s.
Politics aside, the point of the historic agreement was to force those
lenders — Bank of America, Wells Fargo, Citi, Chase and Ally — to provide relief
to consumers in the form of loan modifications, mortgage forgiveness,
refinances, and yes, short sales. So far consumer relief has totaled more than
$10 billion, with 80 percent of that being short sales.
More than 74,000 borrowers nationwide have completed short sales through the
settlement, based on a recent report from the agency watching over the deal.
Roughly 34 percent were done in California. (County-by-county tallies were not
available.)
The logic behind short sales is to get struggling homeowners out of homes
they can no longer or barely afford and shift those properties to consumers who
are in a better financial position.
“We tried, we really did,” said Mary Anne Camilon, who moved in with family
in Ventura County after losing her teaching job in San Diego. “When we realized
we weren’t moving back to the San Diego area, there was no reason to hold on to
it (the house) anymore.”The national
mortgage settlement is structured in a way that banks get more
incentives if they provide more consumer relief, such as short sales, during the
first year instead of dragging it out through the three years they have been
allotted.
Possible penalties are also pushing banks to move faster. Every time one of
the lenders provides consumer relief, they get a credit toward their settlement
record. If they fail to fulfill what they promised in the deal within three
years, then they could pay at least 125 percent “of its unmet commitment
amount,” the mortgage report stated.
“I believe we have made a good first step,” wrote the appointed mortgage
settlement watchdog Joseph A. Smith in the progress study dated Aug. 29. “More
hard work remains.”

Why cash bonuses will help

Major banks like Bank of America and Chase are pushing more short sales
through with the help of cash.
They’re offering distressed borrowers deals that for some are hard to
believe.
“I think it said, ‘You could be eligible for up to $20,000 in funds to help
you get into a new home...” said Camilon, the teacher who short sold her Vista
property.
She was skeptical, but after consulting with Ryan Donigan, of Utopia Mortgage
& Real Estate, she went ahead with a short sale. Once escrow closed, she got
her money.
The trend of banks offering cash bonuses for completed short sales emerged
about a year, as
the U-T San Diego reported. But it has grown more common. This
year, Bank of America began to offer it to any of its borrowers who ask. Certain
banks are pickier.
Bank of America is offering delinquent homeowners $2,500 and $30,000 in
relocation help once a pre-approved short sale closes. Similar offers, many of
which appear expedited, have been seen from Citi, Chase and others.
“I have a Carlsbad seller who got a letter from Chase saying they will pay
them $35,000 to do a short sale,” said Battiata. “There’s outreach...On a
foreclosure, they lose more money.”

What this means for the market

Transit planner Brian Lane and his wife bought their Lakeside home at the
height of the market. As the recession set in, the couple with two kids could
barely afford the mortgage so they short sold their home in March 2010.
Despite that experience, the Lanes want to own again and it could be as soon
as the upcoming spring.
“I am just starting to look,” Lane said. “We had a short sale in March 2010,
so will be waiting to March 2013 to close an FHA loan.”
As the banks continue to fulfill their promises to hurt borrowers through the
$25 billion foreclosure settlement and the Freddie Mac changes take effect, more
former homeowners like Lane could theoretically own again within a short time
period. Their credit scores won’t sink as low because they aren’t forced to
default and because a short sale gives off less of a sting on your credit report
than a foreclosure.
“My story is going to become quite common as those who short sold are looking
to re-enter the market,” added Lane, whose score took a 150-point dive after his
short sale. Now? It’s rebounded to more than 700.
“I’m optimistic,” he said. “I hear home prices are going up a little ... so
hopefully the people who have been waiting to put their house on the market will
put it out because it’s more of a seller’s market.”
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Wednesday, October 3, 2012

Musings About Short Sales and Late Payments

by Melissa Zavala on October 3, 2012

Have you ever had a client ask you if they could participate in a short sale without missing a mortgage payment? If so, how did you respond?

Prospective short sale sellers that are still making their mortgage payments are often curious about whether they could successfully receive short sale approval on their home without ever missing a payment.
Clearly those folks are a little different from the faction who are unemployed or underemployed and can barely make ends meet. These are borrowers facing imminent default or those out to sell their home for other reasons. Often borrowers still making their mortgage payments have a strong desire to preserve their credit.

So, the question is, “Can you participate in a short sale without missing a mortgage payment?”The answer is simple (read: sarcasm): Yes, no, or maybe.There are certain short sale lenders that will approve a short sale with no missed payments—especially for those short sale sellers facing imminent default. There are other lenders that will not. And, to even make it more confusing, remember that all of the big servicing companies (Bank of America, Chase, Wells Fargo among others) service loans for hundreds of investors—each with their own guidelines for short sale approval.
So, what does that mean for you and to your business? It means that even if one B of A short sale got approved with no late payments, it’s possible that the next will not. Each short sale seller’s loan is owned by a different noteholder, and it is the noteholder guidelines that control the decision-making process.In 2012 alone, we have seen a handful of short sale sellers that have been told that their short sale will only be evaluated if the borrower is 60 days late on the mortgage: we’ve seen it at B of A, we’ve seen it at Wells Fargo, and we’ve seen it at IndyMac. Heck… we even received a conditional approval the other day from PNC that said that the short sale approval letter is conditioned upon the seller missing two payments. However, the negotiator did do a solid for the short sale seller; she pushed the closing date out 65 days so that now the seller can go late.The bottom line is that there are many unknowns with short sales. Often times experienced agents and short sale processors can surmise how things will probably happen based upon their previous experience. However, with all of the continuing changes in the distressed property world, you really never know.

Wednesday, September 26, 2012

Attorney General Kamala D. Harris today announced that claim forms will be sent to approximately 432,584 California borrowers who lost their homes to foreclosure between January 1, 2008 and December 31, 2011 and may be eligible for a settlement payment under the $25 billion national mortgage foreclosure settlement. Below the detailed announcement from Sacramento.

Monday, September 24, 2012

Lately, especially after the settlement of Department of Justice (DOJ) and Attorney generals against the 5 major lenders, there has been a pronounced shift in the attitude how lenders treat short sale. In fact, the FHFA announced new guidelines to streamline short sale.

Sunday, September 16, 2012

Since the onset of housing crisis, there has been instances where homeowners who were not in distress made strategic defaults in order to get out of underwater homes. Although ethically and morally questionable, this practice is still practiced. It takes careful planning to exit from your current home into next home. Here is an interesting article from Inman News about the topic.

Tuesday, September 11, 2012

Nonprofit Counselors: Missing Link Between Borrower and Servicer?

By: Esther Cho 09/09/2012

Delinquent borrowers oftentimes make themselves as elusive and unavailable as possible when it comes to communicating with their servicers. During a panel at the Five Star Conference, industry experts discussed the reasons behind the difficulty in reaching borrowers.

Colleen Hernandez, CEO and president of the Homeownership Preservation Foundation (HPF), explained three main reasons why borrowers won’t respond or reach out to their servicer.
For one, when borrowers don’t have the money to bring their account current, then for them, it seems pointless to contact their servicer.

“They think that their servicer wants money, and, since a struggling homeowner often doesn’t have that money, they think, ‘What’s the point?’” said Hernandez in a follow-up email interview. “Additionally, many homeowners believe that calling their servicer will actually speed up the foreclosure process.”
A second reason is borrowers don’t know who to trust. With the countless scams that exist to target struggling homeowners, it can be difficult to know who is there to truly help.

Hernandez said that when she Googles foreclosure prevention every morning, she’s amazed by those who have morphed from yesterday’s name to today’s name based on headlines.
Hernandez said the third reason borrowers don’t reach out is they need help with more than their mortgage. Instead, they need a financial advisor who can look at the entire picture.

Additionally, Hernandez said, “What homeowners typically don’t understand is that, more than anything, servicers want performing loans and are often willing to explore ways in which they can bring a loan back to performing status and avoid a costly foreclosure.”
For borrowers, however, they are oftentimes in a situation where their loan has been sold several times to different servicers, in addition to the scammers reaching out to them.

To help borrowers get the information they need as they maneuver their way through confusing terrain, HPF is able to act as a bridge between borrowers and servicers.

“While many servicers now send out letters advising delinquent borrowers to contact them directly, they also recommend that homeowners contact a nonprofit housing counselor, like those available by calling the Homeowner’s HOPE Hotline at 888-995-HOPE. Homeowners often feel more comfortable speaking with someone who doesn’t have any ‘skin in the game’ and is providing honest, non-judgemental advice on what their options are, the potential impact on their family and their finances, and a lifeline to call for future questions,” said Hernandez.

Besides enlisting the help of a third-party counselor, another strategy to ensure borrowers get the information they need is face-to-face contact.
Jay Loeb, VP of Strategic Development at National Creditors Connection, explained that after the phone calls and letters have gone out and neither has worked, face-to-face contact can be another solution to engage borrowers. [Editor’s note: The Five Star Conference is hosted by The Five Star Institute, DS News’ parent company.]

Monday, September 10, 2012

Negative Equity and Its Impact on Current Loans: Report

By: Esther Cho 09/10/2012

Eighteen percent of current loans remain underwater, according to Lender Processing Services’ (LPS) July Mortgage Monitor report. In states where the percent of current loans sitting underwater is extremely high, the percentage of new problem loans was also higher.

For example, the state with the highest share of new problem loans was Nevada, where 54.7 percent of current loans are underwater, followed by Florida (33.1 percent), Arizona (28.4 percent), and Georgia (42.8 percent).

LPS also examined the relationship between high loan-to-value ratios (LTV) and the likelihood of becoming a new problem loan. For loans that had an LTV greater than 150 percent, 4.4 percent went from being current to delinquent.

For loans with an LTV of 110-120 percent, 2.2 percent became new problem loans.
“As negative equity increases, we see corresponding increases in the number of new problem loans. In Nevada and Florida, two of the states with the highest percentage of underwater borrowers, more than three percent of borrowers who were up to date on their payments are 60 or more days delinquent six months later. This suggests that further home price declines – should they occur – could jeopardize recent improvements,” explained Herb Blecher, senior vice president of LPS Applied Analytics.

Overall, the delinquency rate for July was 7.03 percent, a yearly drop of 11 percent and a 30 percent decline from the January 2010 peak.

The percent of inventory in foreclosure stood at 4.08 percent and remained mostly unchanged both monthly (-0.2 percent) and yearly (-0.9 percent).
July saw about 186,000 foreclosure starts, down 10.5 percent yearly but up 7.1 percent monthly. There were about twice as many foreclosure starts as foreclosure sales or liquidations, which numbered about 93,000.

Foreclosure inventory in judicial states continued to be elevated at 6.46 percent compared to non-judicial states (2.38 percent). Also, foreclosure sales was much lower in judicial states, where 2.09 percent of foreclosure inventory went to sale compared to 6.71 percent in non-judicial states.

Expiring Mortgage Debt Relief Act Fuels Strategic Default: Survey

By: Esther Cho 05/29/2012

A foreclosure prevention agency found that the pending expiration of the Mortgage Debt Relief Act of 2007 is prompting struggling homeowners to strategically default on their loan.

YouWalkAway.com conducted a national survey and found 34 percent of respondents indicated that the act, which is set to expire December 31, 2012, contributed to their decision to walk away sooner rather than later from their property. Those surveyed were YouWalkAway.com clients who were actively considering or navigating through the foreclosure process.

The Mortgage Debt Relief Act releases homeowners from the obligation of paying taxes on mortgage debt forgiven from a short sale, foreclosure, or modification. Taxpayers are eligible if the property is the primary residence.

“The survey results are not surprising; YouWalkAway.com saw a number of homeowners reach out to us in early and mid-2011 due to the impending 2012 deadline,” said Jon Maddux, CEO of YouWalkAway.com, in a release. “Many were prompted to begin the foreclosure process in 2011 in order to ensure their foreclosure is complete by the end of 2012.”

While the expiring act motivates homeowners to seek completion of the foreclosure process before the expiration date, for those who won’t qualify in time, Maddux said not extending the act will then cause short sales to stop immediately due to the fear of getting hit with a huge tax bill.

In addition, 78 percent of respondents from the YouWalkAway.com survey expressed intentions of walking away from their home. Of those, at least 74 percent would qualify for relief under the act.

“Potentially millions of people will find themselves stuck with a huge tax bill after foreclosure if the government doesn’t renew the Debt Relief Act at the end of 2012 or if they don’t finalize their foreclosure by that date. The bill may just expire, like when Congress chose not to renew the home buyer’s tax credit,” said Maddux.

Cheryl Gerhardt, a CPA who has worked with YouWalkAway.com clients, said about 80 percent of the people who approach her about foreclosure tax consequences qualify for the relief under the act.

“These are usually people who purchased during the height of the market from 2005 to 2007 and never had the opportunity to take out a second, whereas a few years ago clients who were getting foreclosed upon had made purchases in the early 2000’s, took out a home equity line of credit and could not qualify,” said Gerhardt.

In March, House Bill H.R. 4290, or Homeowner Tax Fairness Act, was introduced to extend the act to 2015. The bill is sponsored by Rep. James McDermott.

The Mortgage Relief Act was actually extended in October 2009, three months before the act’s expiration date.

YouWalkAway.com works with borrowers facing foreclosure as well as those opting to strategically default on their underwater homes. The survey the agency conducted reached out to 2108 borrowers and received responses from over 25 percent of those contacted.

Wednesday, September 5, 2012

Q: What should I be thinking about when it comes to deciding whether or not to short sell? In other words, what are the pros and cons of doing it now versus 3 or 4 years from now?

A: Short-term versus long-term planning is a great decision making exercise. Many times, when people ask me this question, what they’re really asking is, “Why wouldn’t I just short sell in a couple of years, because I’m not ready now?” It’s a fair enough question but is definitely one that requires some immediate attention, even if you choose not to do anything today.
Before we list off the pros and cons of each, there’s one crucial question that you’ll need to ask yourself and have an answer for! The question is, “Where do I want to be when all the house stuff is finished?” You can’t set a course if you don’t have an endpoint. So, whether your decision is to wipe the slate now and be able to buy again in two to three years or it’s to stay in the house as long as you can and then rent, you have to aim towards something.

Let’s start with the pros and cons of waiting for three or four years, they are…

Pros:

Get to stay in your house longer

Can keep the tax deductions homeownership brings

Leaves the door open for you to possibly keep the house

Avoids the embarrassment of your neighbors talking about your finances

Maintains the status quo (no changes, kids can stay at their school, etc.)

Cons:

Uncertainty of how you’ll be taxed

Banks may not allow short sales then

Rental application will look worse than for those who sold short a couple of years ago

Credit recovery can make this a seven year process (staying for three and up to four more for credit recovery)

You could’ve been done by now

Now, let’s see about doing something today…

Pros:

The Mortgage Forgiveness Debt Relief Act is still active

Credit recovery begins immediately after the sale

Gets you out of an “underwater” investment

Puts your recovery time at two to three years

All factors are known (like taxes, deficiencies, bank processes)

Cons:

Your situation may improve to where you wouldn’t have needed to sell

You have to move

Not ready, logistically or emotionally

Loss of tax deductions

Immediate change

What does all this mean? Generally speaking, it means that doing something now will force immediate change but will give you known results and a quicker recovery. On the other hand, waiting comes with a huge element of uncertainty that may leave you better or worse off and will be a much longer process.
If you have a hardship (either current or future) and your home is underwater, what are you doing for yourself by staying? You’re probably going to need five to ten years of modest gains in home values just to get back to being even with what you owe. Since you’re asking what you should be thinking about, think about where you’ll be in four years if you do something now.

In most cases, if you short sale now, you’re back to being a homeowner in two to three years, you’re able to buy a comparable home for much less, and you’ll have equity in your house with any appreciation that happens. Unless you have a very compelling reason to wait, stop procrastinating and get the next chapter of your life

Saturday, September 1, 2012

Foreclosed and pre-foreclosed homes maintained their position as the source of over a fifth of U.S. home sales in the second quarter of 2012. Twenty-three percent of all residential sales during the period were of bank-owned properties (REO) or homes in some stage of foreclosure, up from 22 percent in the first quarter of the year and 19 percent in the second quarter of 2011. RealtyTrac, an Irvine, California firm that tracks foreclosure activity, reported that an additional 14 percent of all sales were short sales, where the bank agreed to a payoff lower than the actual outstanding mortgage balance, that were unrelated to foreclosures.
RealtyTrac's second quarter U.S. Foreclosure Sales Report noted that the market share of distressed sales increased even though the actual number of those sales fell 12 percent from the previous quarter and 22 percent from a year earlier. A total of 224,429 foreclosure-related transactions were completed during the quarter.

The number of pre-foreclosure sales (short sales) continued to rise relative to sales of REO. Foreclosure related short sales accounted for 107,298 of the distressed sales during the quarter, only 9,733 fewer than bank-owned property sales, the smallest difference between the two since 2007. Eleven percent of all sales during the second quarter were pre-foreclosure sales, up from 8 percent in Q2 2011, and these outnumbered REO sales in 13 states and the District of Columbia. The 117,131 sales of REO represented 12 percent of all sales in the quarter, unchanged from Q1 and one point higher than Q2 2011.

For the first time since the second quarter of 2010 there was an annual increase in the sales price of distressed homes. The average price of $170,040 reflected a 6 percent increase from the first quarter and 7 percent from the previous year. It was also the largest bump in average price since late 2006. The average price represented a discount of 32 percent from that of a non-foreclosure home, up from a 30 percent discount in both the previous quarter and a year earlier.

Pre-foreclosure sales closed at an average price of $185,062, a five percent increase from the previous quarter which had represented a low point in RealtyTrac reporting history, but the price was still 1 percent lower than a year earlier. These sales were at an average discount of 26 percent from a market rate sale, up from a 24 percent discount in Q1 and an 18 percent discount in Q2 2011.

Bank-owned real estate sold for an average price of $155,892, 6 percent higher than in the first quarter and 10 percent above the price in the same quarter of 2011. This represented an average discount of 37 percent unchanged from the first quarter and slightly below the 38 percent discount a year earlier. The highest discounts for distressed property sales were recorded in Texas (41.64 percent) and Massachusetts (40.12 percent).
"The second quarter sales numbers provide solid statistical evidence of what we've been hearing anecdotally from real estate agents, buyers and investors over the past few months: there is a limited supply of available foreclosure inventory to choose from in many markets," said Daren Blomquist, RealtyTrac Vice President.

"Given this shortage of supply and the seasonally strong buyer demand in the second quarter, it's no surprise that the average foreclosure-related sales price increased both on a quarterly and annual basis.
"Three straight months of increasing foreclosure starts through July may ease the inventory shortage somewhat in the coming months when many of these foreclosure starts translate into listed short sales or bank-owned homes," Blomquist added. "The increase in short sales of properties that have not even started the foreclosure process indicates that lenders are moving further upstream to deal with their distressed inventory, thereby avoiding the increasingly complex and lengthy foreclosure process altogether."
Short sales took an average of 319 days to sell after starting the foreclosure process, up from 306 days in the previous quarter and 245 days in the second quarter of 2011. It took an average of 195 days for REOs to sell after completing the foreclosure process, up from 178 days in both the first quarter and a year earlier.
Pre-foreclosure sales increased on a year-over-year basis in 16 states, including Michigan (42 percent increase), Illinois (35 percent increase), Connecticut (27 percent increase) and Massachusetts (27 percent increase).
Foreclosure sales accounted for 43 percent of all residential sales in both Georgia and Nevada in the second quarter, the two highest percentages among the states despite decreasing foreclosure-related sales activity in both states.

Tuesday, August 28, 2012

Arm’s length transactions and short sales

Perhaps not everyone knows, but lenders and servicers typically do not allow non-arm's length transactions, so let's talk about how this works.

What is an arm’s length transaction?

According to the National Association of Realtors®, an arm’s length transaction is a real estate transaction “in which the buyers and sellers act independently and have no relationship to each other. The concept of an arm’s length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party.”
When it comes to short sales, agents, buyers, and sellers frequently have questions about the structure of the short sale transaction. An agent may want to know whether she (or he) can represent a child, sibling or other relative in the short sale of a home. Other buyers and sellers may want to purchase the home of a friend of relative when the property is listed as a short sale.

Almost every short sale lender or servicer (including Fannie Mae and Freddie Mac) has a zero tolerance policy when it comes to non-arm’s length transactions. In fact, many of these lenders require all parties (including both the listing and selling agents) to sign an Affidavit of Arm’s Length prior to approving (or even processing) the short sale transaction.

Bad Things Can Happen

I received a phone call the other day from a Broker who had a fully approved short sale at one of the major lending institutions. He needed a few extra days to close the transaction. And, when he called the bank to ask for the extension, he learned his short sale had been declined. Why? Well it turns out that the Broker was the buyer and he was being represented by an agent in his office. The servicing company and the investor were having nothing of it, and denied the short sale outright.
This individual had signed an arm’s length affidavit. However, whether he actually read before he signed is something that I am still curious about.

Moral of the story:carefully consider the relationships between and among all of the parties of the short sale transaction before moving forward. And, of course, read everything carefully before signing on the dotted line.

Friday, August 24, 2012

Wells Fargo, Nonprofit Partner to Provide Homes to Military Families

By: Tory Barringer 08/23/2012

National nonprofit Operation Homefront announced Thursday that Wells Fargo will donate up to half a million dollars in bank-owned properties to help house military families.

The bank will provide the homes and other support as part of Operation Homefront’s “Homes on the Homefront” program. The two organizations will match unsold homes in the bank’s inventory with deserving families served by the nonprofit. Homefront will provide ongoing transitional services to the recipients until the properties are actually deeded to families.

“Operation Homefront is thrilled to welcome Wells Fargo as a partner for our Homes on the Homefront program,” said Jim Knotts, Operation Homefront CEO. “Wells Fargo’s assistance with the program ensures that more veterans and their families will be able to grow and move forward following their transition from the military.”

The program’s first priority is to take families who currently live at Operation Homefront Village-a transitional housing facility for Wounded Warrior families-and place them in homes.
In order to be eligible for the program, applicants: Must be on active duty, Guard or Reserve, or have been honorably discharged; must not currently be a homeowner; and must be financially capable of sustaining the home throughout an initial transition period and beyond. Any veteran of any era may apply, regardless of wounded or disability status.

“Wells Fargo is proud to support Operation Homefront’s efforts to make housing available for veterans,” said Tyler Smith, a VP with Wells Fargo Home Mortgage’s Premiere Asset Services. “We hope more companies and individuals will get involved with supporting Operation Homefront’s mission that brings resources to veterans seeking ways to overcome homelessness and to address economic challenges, including with the housing market.”

Short Sale Guidelines Could Cause Short-Term Losses to Lenders: Fitch

By: Esther Cho 08/23/2012

The new guidelines are expected to make short sales easier to process and will open up the foreclosure alternative to borrowers not in default if they have certain hardships.

While Fitch Ratings views these new rules as a plus for the housing market in the long term, the ratings agency said, “in the short term, the new guidelines could increase losses on some existing bank home equity or second lien portfolios.”

The ratings agency made it clear that it believes foreclosure alternatives are good for the market. For lenders, the positives come in the form of not having to deal with the lengthy and costly problems foreclosures bring. “For example, short sales on non-agency RMBS are currently finishing 20 months after the last payment made on the loan. That is approximately 10 months shorter than the average time to foreclose. Similarly, the loss severity on prime non-agency mortgages is 14% lower on short sales than REO sales,” Fitch stated.
Another important provision from the new guidelines is one which addresses issues with subordinate lien holders. In order to prevent second lien holders from stalling approval, the GSEs will offer lenders up to $6,000.

Fitch noted that over the short term, the impact of this new guideline on lenders will “vary greatly, as the carrying, legal, servicing, and opportunity costs range broadly across many loans.”
The ratings agency also added that “many of the 2005-2008 vintage home equity lines of credit are still in their interest-only stages and likely to begin amortization in 2014-2015, which may further pressure home equity performance over the intermediate term.”

Wednesday, July 25, 2012

Top Five Short Sale Myths Debunked

by Melissa Zavala on July 16, 2012

You’ve probably already realized that 2012 is the year of the short sale. As an agent, one of your most valuable business tools is the understanding of how to help underwater homeowners avoid foreclosure. Make sure you do not fall into a trap by believing these common myths:

Myth #1: The homeowner must have missed mortgage payments in order to qualify for a short sale. Debunked: Years ago this may have been true, but not in 2012.
A financial hardship should exist or be imminent. But, not all folks with financial hardships have missed a mortgage payment. Common hardships include mortgage rate adjustments, loss of job or income, health or medical issues, and divorce among others.

Myth #2: Banks prefer foreclosure to processing a short sale. Debunked: The truth is that banks would prefer NOT to foreclose on a property because it costs them big bucks. The bank will lose a lot less on a short sale than on a foreclosure.
In fact, many banks are so interested in short sales that they are paying sellers to participate in a short sale versus letting the home go to foreclosure.

Myth #3: In order to the seller to qualify for a short sale, he or she must speak with the lender first and get pre-approved.Debunked: While each lender has a different way in which they process the short sale, overall the best way to get in front of a tough situation is to speak with a knowledgeable agent that knows how each short sale lender operates. Often, when calling the lender, short sale sellers find that they do not get the answers that they want and need from the first line of short sale support.

Myth #4: Short sales don’t close.Debunked: The truth is that about 50% of all real estate transactions right now involve distressed properties. And, at Short Sale Expeditor we have a 98% success rate in obtaining a short sale approval letter from the lender.Myth #5: Short sales take months (and months) to close.Debunked: The short sale process must be mastered and it helps quite a bit to know the ins and outs at each of the major lending institutions. There are many short sales that can be approved in about 30 days. The more liens on title, then the more lengthy the short sale process.

Thursday, July 19, 2012

Lenders less leery of reducing homeowners' principal

Published Sunday, May. 13, 2012

Principal reduction, long a nonstarter with lenders, has suddenly become a potential reality for thousands of homeowners who owe far more than their houses are worth.Some economists and politicians have argued for years that the only way to revive the housing market and jumpstart the economy is to vastly reduce the amount Americans owe on their mortgages. But lenders have balked at writing down debts.

Now, however, as part of the $25 billion mortgage settlement announced in February, some of the nation's largest lenders have agreed to reduce loan balances for thousands of customers. Bank of America announced this week that it would offer more than 200,000 borrowers relief by reducing principal to as low as a home's current value.

And in a key development, Keep Your Home California, the state's major housing-aid effort, said this week it was changing its rules to no longer require a lender contribution to its Principal Reduction Program, which provides up to $100,000 in loan forgiveness. That change will benefit as many as 9,000 borrowers in the state, program officials said.

In addition, Fannie Mae and Freddie Mac, the government-backed mortgage giants that control the majority of mortgages in the state, will now allow loans to be paid down by the California program. Before, when a lender contribution was required, Fannie Mae and Freddie Mac would not participate.

Diane Richardson, head of Keep Your Home California, said the changes will "level the playing field" for underwater borrowers, who have been unable to refinance homes in which they have no equity. "It gets them back to the point where they won't be so underwater that they just feel helpless," she said.Even as it gains momentum, principal reduction remains deeply controversial, with some experts calling it a potential cure for the economy and others expressing concern about its effectiveness and fairness.

Keep Your Home California's Principal Reduction Program, for example, benefits homeowners who have experienced economic hardship, such as job loss, and who are delinquent on their loan payments or facing foreclosure. A borrower in that situation could receive a principal write-down of up to $100,000, while their neighbor, who has made mortgage payments on time but who is also deeply underwater, receives no debt reduction.

About 30 percent, or more than 2 million, of California's 6.8 million mortgaged properties were underwater in the fourth quarter of 2011, Santa Ana-based CoreLogic reported.The question with principal reduction is "who do you give it to?" said Mike Himes, vice president of NeighborWorks in Sacramento, a nonprofit that helps struggling homeowners.

Himes, who stressed he was expressing his own views and not those of his organization, said those who have their loan balance reduced – in some cases because of only temporary job loss – will be better positioned to build equity as the housing market recovers.

Those who stayed employed and kept paying, on the other hand, may never catch up. "Selected people will get back (lost equity) and some won't," he said. Himes said loan modifications, which reduce interest rates and extend payment terms, can make mortgage payments affordable without giving some homeowners a big advantage.

Many critics of principal reduction say it creates an incentive for borrowers to default on their loans in order to take advantage of assistance programs. Some economists call such incentives for bad behavior, with others paying the costs, a "moral hazard," and warn against them.

"Principal reduction should be the absolute reduction of last resort," said Anthony Sanders, a professor of real estate finance at George Mason University.

Effectiveness challenged

Democratic politicians have criticized DeMarco for refusing to let the government-sponsored enterprises reduce the principal of loans they own or back. To do so, he has argued, would undermine his responsibility to preserve their assets and minimize losses to taxpayers, who invested more than $187 billion in Fannie Mae and Freddie Mac following their near collapse in the housing crash.In his April speech, DeMarco said it might make sense in some circumstances to offer principal reductions. But he said a large-scale effort would come at net cost to taxpayers of $2.1 billion and would affect less than one-tenth of the estimated 11 million underwater homeowners in the United States."This is not about some huge difference-making program that will rescue the housing market," DeMarco told the Brookings audience.Others disagree. California Attorney General Kamala Harris, a key player in negotiating the national mortgage settlement, has been one of DeMarco's critics. In February, she wrote him saying the settlement would help borrowers of Bank of America, Chase and Wells Fargo, who promised to provide at least $12 billion for principal reduction and short sales, where lenders agree to accept less than what they're owed.The settlement did not include Fannie Mae and Freddie Mac, Harris noted. She urged DeMarco to cease foreclosures in the state and to conduct a "straight-forward analysis" of whether a broad program of principal reductions would help homeowners and save taxpayer dollars. Harris expressed confidence that the agency's potential findings would confirm her views. DeMarco wrote back denying her request. He said the agency had already analyzed the benefits of principal reduction, and had concluded it was no more effective than other tools that reduced monthly payments without such high costs. Those tools included cutting interest rates and extending loan terms. "There is no question that underwater borrowers in California would benefit from other taxpayers across the United States paying off the underwater portions of their mortgage debt," he wrote to Harris. But DeMarco said his obligation was to taxpayers and to ensuring maximum assistance at minimum cost.

An incentive to stay

The biggest benefit to all taxpayers, he said, would be to pull the economy and the housing market out of its slump by erasing debt that may never be repaid – and which will only lead to more foreclosures and economic turmoil.Principal reduction should be open to a broad range of borrowers, not just to those who are delinquent, to address the fairness issue and to avoid providing incentives for borrowers to stop paying, he said. He said borrowers don't need to see their negative equity erased, but suggested that loan balances should be no more than 120 percent of home values."It gives them an incentive to stay in their home and gives them light at the end of the tunnel," he said. Who would pay the billions of dollars such a program would cost? Taxpayers, he said.It makes sense, he said, because those same taxpayers will pay regardless, though depressed home prices, lagging job recovery, neighborhood blight and under-funded schools.The downward spiral will only continue as long as there's a massive amount of negative equity on the books, he said. With a broad-ranging debt reduction, he said, "I think we'll all be better off."

That's the wrong way to look at it, said Jeffrey Michael, director of the Business Forecasting Center at the University of the Pacific in Stockton.

Sanders made his comments during a panel discussion on principal reduction last month at the Brookings Institution, a public-policy think tank in Washington, D.C. The keynote speaker at the event was Edward DeMarco, acting head of the Federal Housing Finance Agency, the government conservator that oversees Fannie Mae and Freddie Mac.

Friday, May 18, 2012

Bank of America Increases Relocation Assistance Payments to Customers Completing Preapproved Price Short Sales Short Sales Provide Alternative to Foreclosure for Delinquent Borrowers Who Have Exhausted or Declined Home Retention Solutions

CALABASAS, Calif. – Adding to its foreclosure prevention initiatives, Bank of America has launched a nationwide program that offers delinquent mortgage customers increased assistance with relocation expenses – between $2,500 and $30,000 - at the completion of a qualifying short sale. “Bank of America is committed to providing alternatives to foreclosure whenever possible,” said Bob Hora, home transition services executive for Bank of America. “This program can help customers make a planned transition from ownership when home retention options have been exhausted or they have made a decision not to keep the home.”

The short sale relocation assistance program builds on the bank’s already robust short sale initiatives, which led to 200,000 completed short sales in the last two years and another 30,000 in the first quarter of 2012. This program is based on a similar incentive offer that Bank of America tested in Florida last year. To qualify for the enhanced relocation assistance payments under the new program, the seller must work proactively with the bank to obtain a preapproved sales price prior to submitting a purchase offer to the bank.

A short sale must be initiated by the end of this year and close by September 26, 2013, to be eligible for the payment. Qualifying short sales that have already been started but have not closed may be eligible for the relocation assistance. The amount of assistance provided under the new program will be determined on a case-by-case basis using a calculation that includes the value of the home, amount owed and other considerations.

Initially, the program will be offered on mortgages that are owned and serviced by Bank of America. While available nationally, Bank of America anticipates greatest response to the program will come from borrowers in California, Nevada, Arizona, Florida and other states hardest hit by the economic downturn and falling property values.

Customers who believe they may be eligible for Bank of America’s short sale relocation assistance program may contact program specialists at 877.459.2852. To help homeowners understand the short sale process and other foreclosure avoidance programs, Bank of America encourages them to visit the Home Transition Services website at www.bankofamerica.com/hometransition.

Bank of America Bank of America is one of the world's largest financial institutions, serving individual consumers, small- and middle-market businesses and large corporations with a full range of banking, investing, asset management and other financial and risk management products and services.

The company provides unmatched convenience in the United States, serving approximately 57 million consumer and small business relationships with approximately 5,700 retail banking offices and approximately 17,250 ATMs and award-winning online banking with 30 million active users. Bank of America is among the world's leading wealth management companies and is a global leader in corporate and investment banking and trading across a broad range of asset classes, serving corporations, governments, institutions and individuals around the world.

Bank of America offers industry-leading support to approximately 4 million small business owners through a suite of innovative, easy-to-use online products and services. The company serves clients through operations in more than 40 countries. Bank of America Corporation stock (NYSE: BAC) is a component of the Dow Jones Industrial Average and is listed on the New York Stock Exchange.

Statements in this press release regarding Bank of America Corporation's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.

Thursday, May 10, 2012

Underwater California homeowners to get more help

In a big change, the state-run Keep Your Home California program will use federal money to reduce an eligible homeowner's mortgage balance by up to $100,000 without requiring a matching reduction by the bank servicing the loan.

Many more underwater California homeowners will get principal reductions when the change takes effect in early June, but there's a catch: The reduction is structured as a forgivable loan. If they sell their house within five years, any profit will go toward repaying the principal reduction. After five years, there is no repayment requirement. Under current rules, the loan is forgiven after three years.

Loans backed by Fannie Mae and Freddie Mac are potentially eligible for principal reduction under this program.The money is coming from a $2 billion grant the state was awarded in 2010 from the U.S. Treasury Department's Hardest Hit Fund. The grant provides four types of assistance to low- and moderate-income homeowners who can document a financial hardship.

The program allocated $772 million of that money to reduce principal by up to $50,000 per homeowner, but it required a dollar-for-dollar reduction by the servicer. Few servicers participated in this part of the program, and it only applied to loans held in their own portfolios.
As a result, only 926 homeowners qualified for principal reductions totaling $44 million.

Servicers' role

The California Housing Finance Agency, which runs the program, says that starting in early June, it will no longer require servicers to provide a matching reduction, although they will have to modify the loan by reducing the interest rate, extending the term or both. Homeowners can still get up to $100,000 in principal reduction, but it will all come from the federal money.

The goal is to get the borrower's debt-to-income ratio to 31 percent and loan-to-value ratio under 120 percent, although "they can go as low as 105 percent LTV," says Diane Richardson, the program's director.
The agency expects to reduce principal for about 9,000 homeowners under the guidelines that take effect in June.

To qualify under the new rules, homeowners must use the home as their primary residence, owe more than it's worth, fall below the income limit for their county, demonstrate a financial hardship and owe no more than $729,750 on a first mortgage originated on or before Jan. 1, 2010. (The previous cutoff date was Jan. 1, 2009.)

In San Francisco the household income limit is $121,900. For other counties see keepyourhomecalifornia.org/files/income.pdf.

The owner's servicer must be part of the program, but more servicers probably will participate if they don't have to cut principal out of their own pockets.

The program originally prevented people who had taken cash out of their homes - through a cash-out refinance or home equity loan - from getting a principal reduction but it lifted that restriction last fall.

The Treasury Department has approved the latest rule changes.
The Obama administration has been pressuring Fannie Mae and Freddie Mac to permanently reduce principal on underwater loans. The Federal Housing Finance Agency, which regulates Fannie and Freddie, has not allowed them to forgive principal but has allowed temporary reductions known as principal forbearance as part of a loan modification.

A spokeswoman for the federal agency says Fannie and Freddie may accept the pay down of mortgage principal funded through a Hardest Hit Fund program - including Keep Your Home California - as long as other servicing guidelines are met.

Stance unchanged

That doesn't mean the federal agency has changed its stance and will allow principal forgiveness on Fannie and Freddie loans outside of such programs.

The California agency announced several other changes to its four Keep Your Home California programs:
-- Starting in early June, homeowners can receive up to $100,000 in total assistance from one or more of the programs. The current household limit is $50,000.
-- As of May 7, homeowners with a financial hardship can receive up to $25,000 to catch up on missed mortgage payments. The current limit is $20,000.
-- Starting in early June, principal reduction will be disbursed in the first year rather than spread over three years.

On all programs combined, the state has spent $411 million of the $2 billion it received from the Hardest Hit Fund. It has until the end of 2017 to spend the remaining funds.

To apply for the program, call (888) 954-5337. Applications for principal reduction under the new rules will not be taken until early June.

Friday, April 6, 2012

The federal Treasury Department's short sale program, HAFA, has been updated again and these new changes mean more homeowners will be eligible for help. Part of Making Home Affordable, the federal short sale program offers many benefits for borrowers who can no longer afford to keep their home. The government is determined to help lenders, servicers and borrowers move through this process more quickly and clear out the delinquent loans asap.

HAFA provides homeowners with a protection against future liability for the mortgage debt, and eliminates the lender asking for a promissory note or cash contribution from the seller. Seller's also receive $3000 paid at closing to help with relocation expenses.

Short selling your home is a difficult decision, but getting a fresh start is a wise choice-especially when HAFA provides these important protections and benefits.

Friday, March 30, 2012

According to CoreLogic's latest National Foreclosure Report for February, foreclosure inventory and 90+ delinquency rates, there were approximately 65,000 completed foreclosures in February 2012. That is less than 66,000 properties in February 2011, and 71,000 in January 2012.

The number of completed foreclosures for the 12 months ending in February was 862,000. From the start of the financial crisis in September 2008, there have been approximately 3.4 million completed foreclosures.

Approximately 1.4 million homes, or 3.4 percent of all homes with a mortgage, were in the foreclosure inventory as of February 2012 compared to 1.5 million, or 3.6 percent, in February 2011 and 1.4 million, or 3.4 percent, in January 2012. Nationally, the number of borrowers in the foreclosure inventory decreased by 115,000, a decline of 7.6 percent, in February 2012 compared to February 2011.

"The pace of completed foreclosures is down slightly compared to January, running at an annualized pace of 670,000, but compares favorably to the pace of completed foreclosures in February a year ago. Even though the pace of completed foreclosures has slowed, the overall foreclosure inventory is decreasing because REO sales were up in February," said Mark Fleming, chief economist for CoreLogic. "With the spring buying season upon us, the inventory may decline further as the pace of distressed-asset sales rises along with the rest of the housing market."

"In February, more than 60 major markets saw a decrease in their foreclosure rates compared to a year ago," said Anand Nallathambi, president and CEO of CoreLogic. "This combined with faster REO-clearing rates, better employment news, and continued historically low interest rates are all positive signs of improvement in the housing economy."

The share of borrowers nationally that were 90 or more days late on their mortgage payment fell to 7.3 percent in February 2012 from 7.8 percent in February 2011, but inched up from 7.2 percent in January 2012. At the same time, the inventory of real estate owned (REO) assets held by servicers nationwide grew faster in February 2012 than the pace of REO sales, as measured by the distressed clearing ratio. The distressed clearing ratio is calculated by dividing the number of REO sales by the number of completed foreclosures; the higher the ratio, the faster the pace of REO sales relative to the pace of completed foreclosures. The distressed clearing ratio for February 2012 was 0.73, up from 0.66 in January 2012.

Report Highlights as of February 2012

•The five states with the largest number of completed foreclosures during the 12 months ending in February 2012 were: California (154,000), Florida (87,000), Michigan (64,000), Arizona (63,000) and Texas (58,000). These five states account for 49.4 percent of all completed foreclosures nationally.
•The percent of homeowners nationally who were more than 90 days late on their mortgage payments, including homes in foreclosure and REO, was 7.3 percent for February 2012 compared to 7.8 percent for February 2011, and 7.2 percent in January 2012.
•The five states with the highest foreclosure rates were: Florida (12.0 percent), New Jersey (6.6 percent), Illinois (5.4 percent), Nevada (5.0 percent) and New York (4.9 percent).
•The five states with the lowest foreclosure rates were: Wyoming (0.7 percent), Alaska (0.8 percent), North Dakota (0.8 percent), Nebraska (1.0 percent) and Montana (1.4 percent).
•Of the top 100 markets, measured by Core Based Statistical Areas (CBSAs) population, 33 are showing an increase in the year-over-year change in the number of foreclosures in February 2012, two less than in January 2012 when 35* of the top CBSAs were showing an increase in the year-over-year change in the number of foreclosures.
•Of the top 100 CBSAs, 61 have lower foreclosure rates than a year ago.

Saturday, March 10, 2012

Suze Orman is a personal finance guru in the United States. She is the host of The Suze Orman Show on CNBC and author of seven New York Times Best Sellers. Her website is www.suzeorman.com.

IBT speaks to Orman about the current economic situation for Americans and her opinion on options for people with underwater mortgages and seniors living on fixed income.

IBT: From the perspective of the American people, and as an advocate of the American people, what would you tell the government right now? What do Americans need from them at this point?

Suze Orman: I think more than what the people need from the government, at this point, this far into it, it's what the American people can do for themselves. It is obvious that the government cannot save them. It is obvious real estate, the stock market, and all those things are not going to save them.

It is obvious that regulation is trying to help them, but there is always a way around regulation when you're a major financial institution.

You have got to be involved with your money, you have to have an understanding of person finance, you have go to make sure that everything you're doing for you makes sense regardless of what someone else is telling you.

The past few years have been a vivid example of, “if you don't save yourself, nobody else will.” In terms of the government, it's obvious that jobs have to be created. It is absolutely unacceptable that you have this many people unemployed.

Something has to be done about all the mortgages that are underwater. I am a firm believer that many people who are underwater in the U.S. were not people who got loans they couldn't afford and were trying to scam the system. They were hardworking, good people.

But because of the lack of oversight of the banks, the mortgage companies, and Wall Street*, we had a severe recession, very close to a depression. Everybody cut back, they lost their jobs. They weren't able to pay their mortgages, their home values went down. It was really [through] no fault of their own. They were the victim of a corporate crime and no one is paying the dues on it except them. It's a travesty that no one is willing to help them.

IBT: What do you think regulators should do about underwater mortgages?

Suze Orman: This is a very difficult [situation] because it's very unfair [for] those people who have been paying their mortgages every single month, even if their mortgages are underwater. They have been very responsible and [some] of them get absolutely no help.

I really think we should have reset all mortgages, across the board, to current fair market values. It's absolutely nuts that some people bought homes and put a lot of money down, but now their mortgages are underwater.

I can give you an example of a $600,000 home in Tampa, Florida, and $120,000 was already put down. The house is now worth about $150,000. There is no help for this person because it's a rental property. But it was a legitimate purchase for them. But there was no help for them, and there was no choice for them, so they walked away and claimed bankruptcy. How sad is that! All for somebody to buy that house for $150,000, when they could have just let these people stay and reset the mortgage at $150,000. What's the difference!?**

IBT: Let's talk about personal finance scenarios. What should you do if your mortgage is underwater, and you're basically one broken refrigerator away from not being able to make your mortgage payment?

Suze Orman: In the U.S., the very first thing you should do is not touch a penny from a retirement account. Remember that money, especially in a 401-k plan, is absolutely protected from bankruptcy.

[Having said that], you should continue to pay the mortgage as long as you can, ethically. But if you honest-to-God cannot pay for it, then stop paying for it. Do not put the money on a credit card. Do not take it out of anything else that you have. Do not borrow it from somebody else. Stop paying for it!

At that point, you have the choice of foreclosure, deed in lieu of foreclosure, or a short sale. You should call up the financial institution that holds your mortgage, and if you really cannot afford the payments on this house, you should immediately put it up for a short sale. If a bank will not allow you to do a short sale, then foreclosure or deed in lieu of foreclosure are your options. If your banks still refuses to work with you on any level, then walk away.

IBT: If you're a senior citizen living on a fixed income, what would you recommend?

Suze Orman: Back in 2006, I started to tell everybody to buy municipal bonds. Many of the reporters [back then] made fun of me for getting out of the stock market and putting 99 percent of my [portfolio] in municipal bonds. This is back in 2006, 2007, and here we go, my bonds portfolio is absolutely skyrocketing at this point, especially since April of this year.

With that said, there are still wonderful municipal bonds that you can easily get a 4 percent tax-free return on.

IBT: So you're telling them to switch to municipal bonds right now?

Suze Orman: Well, if they have money in money market accounts, they should be looking at [investments that can generate] income. Income is the goal, not access to the principal***. It is my personal belief that interest rates will stay low for [a while]. Therefore, if you're a senior citizen and you need to pay your bills, you're not going to make it with a 1 percent or ½ percent interest rate [income that is also] taxable.

You can possibly take that money and get a 4 or 5 percent tax-free rate in a municipal bond. Also, you might want to look at individual stocks that pay you a good dividend yield. There are many of them out there, if you do not care about the ups and downs of your principal. If all you care about is being able to pay your bills with the income this money is generating for you, then high-dividend, secure dividend-paying stocks are a wonderful thing to look at.

If you need diversification, there is nothing wrong with looking at some of the high-yielding dividend paying Exchange Traded Funds (ETFs).

IBT: What other advice can you give regarding retirement from the expense side?

Suze Orman: Normally, your largest monthly payment is your mortgage payment. Many senior citizens still own a home. As you get older, once you know you're going to stay in a home for the rest of your life, pay off the mortgage!

It is your largest monthly expense. As time goes on, the tax deduction goes away. If you're still paying [sizable] monthly mortgages [as a senior], how much money are you going to need in your 401-k plan to generate, after taxes, [that amount]?

IBT: So people should reduce their fixed costs, or their financial obligations? Is that the general attitude?

Suze Orman: It's the general attitude as they are getting older and nearing retirement. When you are younger, [it's different]. Now is the time, the next year or two – I don't think you need to rush, I don't think it's going anywhere – but if you want to buy a piece of real estate, you can get a steal of a deal.

[If] you buy a property, your mortgage payment, your property taxes, as well as your insurance may be equal to or lower than what a rent payment is in your area! You would have a debt payment [if you buy a house], but that's okay. As you're younger, debt at these interest rates is something you can leverage to your good.

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*These three players are blamed for their role in causing the sub-prime mortgage crisis and the Great Recession. Banks and mortgage companies are blamed for their predatory lending practices and for originating massive amounts of subprime loans. Wall Street is blamed for bundling these questionable loans into securities and peddling them to greedy and/or naïve institutional investors like pension funds. Of course, other players, like reckless home buyers and ratings agencies, are also to blame for this mess.

**While the idea of resetting all mortgages to fair market value is somewhat radical, it does make sense on some level. The bankruptcy and foreclosure process is economically inefficient and costly for banks. For home-buyers, it undoubtedly takes an emotional and financial toll to be put out of their homes. Therefore, both parties should benefit from avoiding the foreclosure process. For the example Suze Orman mentioned, the home-buyers would essentially start at “zero” with a $150,000 mortgage. In other words, he would not just have to pay $30,000 more.

***As a reminder, she said access to the principal, not preservation. In other words, the investments should not lose the principal, but it might not make sense for seniors to keep their money in conveniently accessible savings or money market accounts and earn very little return.